Housing Authority of the City of Winston-Salem Financial Statements (With Supplementary Information) and Independent Auditor's Report

Transcription

1 Housing Authority of the City of Winston-Salem Financial Statements (With Supplementary Information) and Independent Auditor's Report

2 Index Page Independent Auditor's Report 2 Management Discussion and Analysis 5 Financial Statements Statement of Net Position 11 Statement of Revenue, Expenses and Changes in Net Position 13 Statement of Cash Flows 14 Notes to Financial Statements 16 Supplementary Information As Required Schedule of Proportionate Share of Net Pension Liability 36 Schedule of Required Contributions 36 Independent Auditor's Report on Internal Control over Financial Reporting and Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards 37 Independent Auditor's Report on Compliance for Each Major Federal Program and on Internal Control over Compliance in Required by the Uniform Guidance 39 Schedule of Findings and Questioned Costs 41 Schedule of Prior Year Findings 42 Supplementary Information Schedule of Expenditures of Federal Awards 44 Notes to Schedule of Expenditures of Federal Awards and State Financial Assistance 45 Financial Data Schedule 46 1

3 Independent Auditor's Report To the Board of Commissioners Winston-Salem, North Carolina Report on the Financial Statements We have audited the accompanying financial statements of the Housing Authority of the City of Winston-Salem (the Authority) as of and for the year ended, and the related notes to the financial statements, which collectively comprise the Housing Authority of the City of Winston- Salem's basic financial statements as listed in the table of contents. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal controls relevant to the preparation and fair presentation of the financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Governmental Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit includes performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the as of, and the changes in its financial position and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. 2

4 Other Matters Required Supplementary Information Accounting principles generally accepted in the United States of America require that the management's discussion and analysis on pages 5 through 9 and the schedule of pension-related required supplementary information as listed in the table of contents to be presented to supplement the basic financial statements. Such information, although not a part of the basic financial statements, is required by the Governmental Auditing Standards Board, who considers it to be an essential part of the financial reporting for placing the financial statements in an appropriate operational, economic or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consists of inquiries of management about the methods for preparing the information and comparing the information for consistency with management's responses to our inquiries, the basis financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance. Other Information Our audit was conducted for the purpose of forming an opinion on the basic financial statements as a whole. The HUD financial data schedule is presented for purposes of additional analysis and is not a required part of the financial statements. The accompanying schedule of expenditures of federal awards is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations (CFR) Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards, and is not a required part of the basic financial statements. The HUD financial data schedule is presented for purposes of additional analysis and is not a required part of the basic financial statements. The schedule of expenditures of federal awards and the HUD financial data schedule are the responsibility of management and were derived from and relate directly to the underlying accounting and other records used to prepare the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the basic financial statements or to the basic financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the accompanying supplementary information, including the schedule of expenditures of federal awards, and the HUD financial data schedule are fairly stated, in all material respects, in relation to the basic financial statements as a whole. 3

5 Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated June 18, 2018 on our consideration of the Authority's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, and other matters. The purpose of the report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Authority s internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Authority's internal control over financial reporting and compliance. Charlotte, North Carolina June 18,

6 Management Discussion and Analysis The management of the offers this narrative overview and analysis of the Authority's financial activities for the year ended. This management discussion and analysis is presented in accordance with the requirements of the Governmental Accounting Standards Board Statement No. 34 (GASB 34). We have made every effort to provide the reader with adequate understanding of the Authority's annual operating results and financial position as of. Questions concerning the information provided in this discussion or requests for additional information should be addressed to the Authority's Executive Director. Financial highlights The assets of the Authority exceeded its liabilities at the close of the most recent fiscal year by $37,696,000 (net position) as opposed to $37,166,000 for the prior fiscal year. The Authority's unrestricted cash, restricted cash and investment balance as of September 30, 2017 was $3,173,849 representing a increase of approximately $468,727, or 17.3% from September 30, The Authority's total revenues and grants were approximately $43,897,000 and total expenses were approximately $44,434,000 for the year ended. Current year and future highlights: During the 2017 fiscal year, the completed numerous projects to meet the mission of improving the lives of the people in our City. The Housing Authority purchased and began rehab on an 84 unit affordable non-federally funded development, Fairview Landing. Fairview Landing, like other developments, is for low and moderate income families. Additionally, the Housing Authority obtained financing to rehab a 44 unit existing development, Drayton Pines, an affordable non-federally funded community. Overview of the financial reports The following outline describes the integral parts of this financial presentation and is a guideline for understanding its components: I. MD&A: Serves as an introduction to the Authority's basic financial statements II. Basic financial statements III. Authority-wide financial statements IV. Notes to the financial statements V. Other required supplementary information The financial statements in this report are those of a special purpose government entity engaged in a business type activity. The following statements are included: Statement of Net Position - presents information about the Authority's assets and liabilities. The Statement of Net Position reports all financial and capital resources for the Authority. The statement is presented in the format where assets, minus liabilities, equal "Net Position," formerly known as equity or net assets. Assets and liabilities are presented in the order of liquidity and are classified as "current" (convertible to cash within one year), and 5

7 Management Discussion and Analysis "non-current." Increases and decreases in net position will serve as a useful indicator of whether the financial position of the Authority is improving or deteriorating. Statement of Revenues, Expenses and Changes in Net Position - reports the Authority's revenues by source and type and expenses by category to substantiate the changes in net position for the fiscal year. Statement of Cash Flows - discloses net cash provided by, or used for operating activities, investing activities, non-capital financing activities, and capital related financing activities. Statements of Net Position The following table represents the condensed Statements of Net Position as of and 2016: (Rounded to nearest $1,000) Current Assets $ 5,158,000 $ 3,933,000 Restricted Assets 767, ,000 Capital Assets 31,139,000 29,180,000 Noncurrent Assets 12,246,000 13,835,000 Deferred Outflows of Resources 522,000 1,191,000 Total Assets and Deferred Outflows of Resources $ 49,832,000 $ 48,545,000 Current Liabilities $ 2,920,000 $ 2,802,000 Long-Term Liabilities 9,147,000 8,464,000 Total Liabilities 12,067,000 11,266,000 Deferred Inflows of Resources 69, ,000 Net Position: Net Investment in Capital Assets 22,738,000 22,776,000 Restricted Net Position 204,000 - Unrestricted Net Position 14,754,000 14,390,000 Total Net Position 37,696,000 37,166,000 Total Liabilities, Deferred Inflows of Resources, and Net Position $ 49,832,000 $ 48,545,000 Cash and Investments increased by approximately $469,000, (17.3%) from the previous year. Current Liabilities have increased by approximately $118,000 (4.2%) at from the previous year. Non-current liabilities increased by approximately $683,000 (8.1%) at from the previous year. See the Debt Outstanding section for more detailed discussion. 6

8 Management Discussion and Analysis The Authority's net position increased by approximately $530,000 (1.4%) at from the previous year. Analysis of combined statement of revenues and expenses The Authority's management continued its commitment to reduce expenses and increase revenue from other sources. The federal government continued its under-funding of its operating subsidy. The Authority moved forward with its plans to offset these ill effects with new revenue streams and more efficient operations. The following table represents the condensed Statement of Revenue, Expenses, and Changes in Net Position for the years ended and (Rounded to nearest $1,000) Net tenant rental revenue $ 3,694,000 $ 3,653,000 HUD operating grants 36,109,000 34,117,000 HUD Capital Grants 1,416, ,000 Other revenue 3,746,000 3,026,000 Total Revenue 44,965,000 41,748,000 Operating expenses 41,632,000 40,916,000 Depreciation 2,803,000 2,578,000 Total Expenses 44,435,000 43,494,000 Net Increase (Decrease) in Net Position 530,000 (1,746,000) Net Position, beginning of year 37,166,000 38,912,000 Change in Accounting Policy - - Net Position, end of year $ 37,696,000 $ 37,166,000 Total Revenue has increased by approximately $3,217,000 (7.7%) from the previous year. Operating Grants increased by approximately $1,992,000 (5.8%) from the previous year. The total expenses increased by approximately $941,000 (2.2%) from the previous year. 7

9 Management Discussion and Analysis Capital assets As of and 2016, the Authority's investment in capital assets was approximately $31,139,000 and $30,467,000 (net of accumulated depreciation), respectively as reflected in the following schedule: (Rounded to nearest $1,000) Land $ 3,639,000 $ 2,800,000 Buildings 89,570,000 86,369,000 Furniture, equipment and machinery 4,569,000 5,287,000 Building improvements 143, ,000 Construction in progress 1,236, ,000 Accumulated depreciation (68,018,000) (66,103,000) Total $ 31,139,000 $ 29,180,000 During the fiscal year ended, Net Fixed Assets increased by approximately $1,959,000. Debt outstanding As of the, the Authority had $8,400,959 in outstanding debt, compared to $7,471,848 at the end of fiscal year Debt of $1,499,661 relates to refinancing of capital leases for additional improvements to the public housing units, and debt of $2,837,472 is mortgages on nonfederally funded communities owned and leased by the Authority. Forsyth Economic Ventures, Inc. (FEV) had debt outstanding of $4,063,826 related to the purchase of the Loewy Building and a new non-federally funded community. Comparison budget vs. Actual - low rent public housing The Authority adopts an annual budget of its Low Rent Public Housing Program through approval by its Board of Commissioners. The budget is based upon a format prescribed by the U.S. Department of Housing and Urban Development (HUD) that differs in some respects from GAAP (Generally Accepted Accounting Principles), with regard to capital expenditures, extraordinary maintenance, depreciation and debt service. The HUD format includes all expenses except for depreciation in the budget for operations during the fiscal period. 8

10 Management Discussion and Analysis The following table is an actual to budget comparison for the Low Rent Public Housing Program for the fiscal year ended : Actual Budget Variance % Change Total rental income $ 2,581,643 $ 2,485,768 $ 95, % Interest income Other operating receipts 526, ,224 (257,634) -32.9% Total operating income 3,108,254 3,269,992 (161,738) -4.9% HUD operating subsidy 6,758,502 5,082,794 1,675, % Total revenue 9,866,756 8,352,786 1,513, % Administration 2,744,535 2,497,868 (246,667) -9.9% Tenant services 31,869 46,230 14, % Utilities 1,366,839 1,343,500 (23,339) -1.7% Ordinary maintenance 2,802,929 2,713,770 (89,159) -3.3% Protective Services 376, ,500 (40,815) -12.2% General and other expenses 1,506, ,081 (851,901) % Total operating expenses 8,829,469 7,591,949 (1,237,520) -16.3% Excess operating revenue over operating expenses $ 1,037,287 $ 760,837 $ 276, % The Low Rent Public Housing Program's excess operating revenue over operating expenses was exceeding its budget by $276,450. This is a direct result of an decrease in operating expenses and a increase in HUD operating subsidy. The result caused the operations to have a positive variance that totaled percent. 9

11 Financial Statements

12 Statement of Net Position Assets and Deferred Outflows of Resources Current Assets Cash and cash equivalents - unrestricted $ 2,407,653 Accounts receivable - tenants (net of allowance) 45,219 Accounts receivable - other 140,391 Accrued interest receivable - current 2,099,855 Inventories 165,089 Prepaid expenses and other assets 299,924 Total Current Assets 5,158,131 Restricted Assets Cash and cash equivalents - restricted 766,291 Total Restricted Assets 766,291 Total Current Assets 5,924,422 Capital Assets Land 3,638,846 Buildings 89,570,264 Furniture, equipment and machinery 4,569,163 Leasehold improvements 143,465 Construction in progress 1,235,627 Capital assets 99,157,365 Accumulated depreciation (68,017,828) Total Capital Assets 31,139,537 Noncurrent Assets Notes receivable 12,245,810 Total Noncurrent Assets 12,245,810 Total Assets 49,309,769 Deferred Outflows of Resources 521,859 Total Assets and Deferred Outflows of Resources $ 49,831,628 11

13 Statement of Net Position Liabilites, Deferred Inflows of Resources, and Net Position Current Liabilities Accounts payable $ 792,909 Accounts payable - HUD 161,335 Accounts payable - other government agencies 177,773 Accrued interest payable 8,808 Accrued wages and payroll taxes payable 132,090 Current portion of obligation under capital lease 708,059 Mortgages and other notes payable - current 134,274 Tenant security deposits 191,257 Accrued compensated absences - current portion 78,152 Unearned revenues 450,785 Other current liabilities 84,606 Total Current Liabilities 2,920,048 Long-Term Liabilities Obligation under capital lease - noncurrent 166,419 Mortgages and other notes payable - noncurrent 7,392,207 Accrued compensated absences - noncurrent portion 234,455 Other noncurrent liabilities 176,576 Pension liability - noncurrent 1,177,416 Total Long-Term Liabilities 9,147,073 Total Liabilities 12,067,121 Deferred Inflows of Resources 68,699 Net Position Net investment in capital assets 22,738,578 Restricted net position 203,714 Unrestricted net position 14,753,516 Total Net Position 37,695,808 Total Liabilities, Deferred Inflows of Resources, and Net Position $ 49,831,628 See Notes to Financial Statements. 12

14 Statement of Revenue, Expenses and Changes in Net Position Year Ended Operating Revenue Net tenant rental revenue $ 3,694,218 HUD operating grants 36,108,953 Other government grants 693,444 Other revenue 1,584,690 Total Operating Revenue 42,081,305 Operating Expenses Administrative 6,765,421 Tenant services 234,729 Utilities 1,558,313 Ordinary maintenance and operations 3,563,933 Protective services 401,463 General and other 1,952,151 Housing assistance payments 26,986,346 Depreciation 2,803,309 Total Operating Expense 44,265,665 Operating Income (Loss) (2,184,360) Non-Operating Revenue (Expenses) Interest expense (169,732) Interest income 398,115 Investment income 95 Other revenue 1,068,243 Gain on sale of capital assets 1,742 Total Non-Operating Income (Expenses) 1,298,463 Loss before capital grants (885,897) HUD Capital Grants 1,415,838 Change in Net Position 529,941 Net Position - Beginning 37,165,867 Net Position - Ending $ 37,695,808 See Notes to Financial Statements. 13

15 Statement of Cash Flows Year Ended Cash flows from operating activities Dwelling rent receipts $ 3,934,771 Operating subsidy and grant receipts 36,329,882 Other government grant receipts 696,736 Other income receipts 2,030,257 Total receipts 42,991,646 Payments to vendors (7,071,047) Payments to employees (6,875,940) Housing assistance payments (26,986,346) Total disbursements (40,933,333) Net cash provided by operating activities 2,058,313 Cash flows from investing activities Investment income 95 Interest income 239,659 Notes receivable from tax credit projects - payments received 33,859 Net decrease in investments 525,942 Net cash provided by investing activities 799,555 Cash flows from capital and related financing activities Capital grants receipts 1,062,368 Capital asset purchases (3,689,634) Proceeds from sale of capital assets 1,742 Proceeds from notes payable 2,579,133 Payments on capital lease obligation and mortgages and notes payable (1,650,019) Interest paid on capital lease obligations and mortgages and notes payable (166,694) Net cash used by capital and related financing activities (1,863,104) Net increase in cash and cash equivalents 994,764 Cash and cash equivalents, beginning 2,179,180 Cash and cash equivalents, ending $ 3,173,944 Reconciliaiton to Statement of Net Position Cash and cash equivalents - unrestricted $ 2,407,653 Restricted cash 766,291 $ 3,173,944 14

16 Statement of Cash Flows Year Ended Reconciliation of operating loss to net cash provided by operating activities Operating loss $ (2,184,360) Adjustments to reconcile operating loss to net cash provided by operating activities Depreciation 2,803,309 (Increase) decrease in assets Accounts receivable - HUD 70,224 Accounts receivable - tenants (14,749) Accounts receivable - other 445,567 Inventories 8,816 Prepaid expenses and other assets 61,528 Other assets 8,168 Other post-employment benefits asset Deferred outflows of resources 668,922 Increase (decrease) in liabilities Accounts payable 639,273 Accounts payable - HUD 150,705 Accounts payable - other government agencies 3,292 Accrued wages and payroll taxes payable (48,499) Tenant security deposits 2,573 Accrued compensated absences 70,127 Unearned revenues 252,729 Other current liabilities (488,743) Other noncurrent liabilities 176,576 Accrued other post-employment benefits liability (523,209) Deferred inflows of resources (43,936) Total adjustments 4,242,673 Net cash provided by operating activities $ 2,058,313 See Notes to Financial Statements. 15

17 Notes to Financial Statements Note 1 - Organization and summary of significant accounting policies Organization The (the Authority, or HAWS) is a public body and a body corporate and politic organized under the laws of the State of North Carolina by the City of Winston-Salem for the purpose of providing adequate housing for qualified low-income individuals. The Authority is a legally separate entity that is fiscally independent of other governments. To accomplish this purpose, the City appoints a Governing Board but the Board designates its own management. Additionally, the Authority has entered into annual contribution contracts with the U.S. Department of Housing and Urban Development (HUD) to be the administrator of the housing and housing related programs described herein. The Authority is governed by a Board of Commissioners appointed by the mayor of the City of Winston-Salem and has governance responsibilities over all activities related to all housing activities within the City of Winston-Salem. The Board of Commissioners has decision-making authority and the power to designate management. The members do not serve at the discretion of the City; i.e., they can be removed only for cause. The Authority's Board elects its own chairperson. Reporting entity In determining how to define the reporting entity, management has considered all potential component units. The decision to include a component unit in the reporting entity was made by applying the criteria set forth in the Governmental Accounting Standards Board (GASB) Statement No. 61, The Financial Reporting Entity: Omnibus An Amendment of GASB Statements No. 14 and No. 34. These criteria include manifestation of oversight responsibility including financial accountability, appointment of voting majority, imposition of will, financial benefit to or burden on a primary organization, financial accountability as a result of fiscal dependency, potential for dual inclusion, and organizations included in the reporting entity although the primary organization is not financially accountable. Based upon the application of these criteria, the reporting entity does have one blended component unit. Forsyth Economic Ventures has been determined to be a component unit of the Authority and is included in this report as a blended component unit. Forsyth Economic Ventures' related entities, as described in Note 13, have been determined to not be component units and will not be reported as such on the accompanying financial statements. Certain activities of these entities related to specific programs, such as Low Income Public Housing and HOPE VI, will be included as applicable within those programs. Basis of presentation and accounting In accordance with uniform financial reporting standards for HUD housing programs, the financial statements are prepared in accordance with generally accepted accounting principles in the United States (GAAP). The Governmental Accounting Standards Board (GASB) is the accepted standard setting body for establishing governmental accounting and financial reporting principles. Based upon compelling reasons offered by HUD, the Authority reports under the proprietary fund type (enterprise fund), which uses the accrual basis of accounting. The enterprise fund emphasizes the flow of economic resources as a measurement focus. In this fund, revenues are recorded when earned and expenses are recorded at the time the liabilities are incurred. The enterprise method is used to account for those operations that are financed and operated in a manner similar to private business, or where the Board has decided that the determination of revenues earned, costs incurred, and/or net income necessary for management accountability is 16

18 Notes to Financial Statements appropriate. The intent of the governing body is that the costs (expenses including depreciation) of providing services to the general public on a continuing basis be financed or recovered primarily through funding from HUD and charges to residents for rent and other fees. All of the Authority's programs are accounted for as one business-type activity reported in a single enterprise fund. Programs administered by the authority The Authority operates the following programs in the Enterprise Fund: Low Income Public Housing - The objective of the program is to provide decent, safe and sanitary housing and related facilities for eligible low-income families and the elderly. Housing Choice - The objective of this program is to help low-income families obtain decent, safe, and sanitary housing through a system of rental assistance. HUD has entered into Annual Contributions Contract (ACC) with the Authority that reimburses the Authority for the rental supplements paid to private landlords and the administrative costs of managing these programs. Veterans Affairs Supportive Housing - The objective of this program is to provide rental assistance for homeless veterans with case management and clinical services. HOPE VI - The objective of this program is to revitalize older public housing units. Business Activities - The objective of this program is to provide additional affordable housing for low income and elderly tenants. Moderate Rehabilitation - The objective of this program is to provide housing using housing assistance payments. Capital Fund Program - The objective of this program is to upgrade and modernize current housing stock and improve operations and management. ROSS Grant - The objective of the program is to provide economic and educational services to lowincome residents. State and Local - The objective of this program is to provide other services to tenants using state and local funding. Supportive Housing for Persons with Disabilities - The objective of this program is to expand the supply of supportive housing for very low income persons with disabilities. Family Self-Sufficiency Program - The objective of this program is to enable HUD-assisted families to increase their earned income and reduce dependency on welfare assistance and rental subsidies. Forsyth Economic Ventures - A component unit of the Authority was formed to rebuild the housing units demolished under the HOPE VI program. HUD requires all Public Housing Agencies meeting certain criteria to account for financial activity of its low income public housing program by project. Referred to as the Asset Management Program, 17

19 Notes to Financial Statements HAWS is required to report financial activity by project as well as by program through HUD's online reporting system. Basis of accounting and measurement focus The basis of accounting for the enterprise fund used by the Authority is determined by measurement focus. The flow of economic resources measurement focus and the accrual basis of accounting are used to account for the Authority's enterprise fund. Under this method, revenues are recorded when earned and expenses are recorded at the time liabilities are incurred. All assets and liabilities associated with the operation of the enterprise fund are included in the Statement of Net Position. Budgets The Authority adopts budgets on the basis of accounting consistent with the basis of accounting for the program to which the budget applies. The Authority prepares annual operating budgets, which are formally adopted by its governing Board of Commissioners. The budgets for programs funded by HUD form the basis of the Federal Financial Assistance received through HUD. Use of estimates in preparing financial statements The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. These estimates may change over time. Cash and cash equivalents Cash and cash equivalents include cash on hand, demand deposits, equity in highly liquid cash and investments, and certificates of deposit with initial maturities of three months or less. Due to/from other programs The Authority has numerous transactions between programs to finance operations and provide services. To the extent that the money to finance certain transactions among programs had not been paid or collected as of year-end, interprogram payables and receivables are recorded. Interprogram receivables and payables have been eliminated in preparation of the Authority's basic financial statements. Interprogram management, bookkeeping and asset management fees have also been eliminated in preparation of the Authority's basic financial statements. Accounts receivable Accounts receivable consists of payments due from HUD, rent payments due from tenants, and other miscellaneous receivables arising from the normal course of operations. A reserve for uncollectible accounts is established based on management's estimates. Inventories Inventories are recorded at cost, cost being determined on the first-in, first-out basis. Capital assets Capital assets includes property under development, operating properties, and capital assets used in operations that cost $1,000 or more and have an estimated useful life of at least one year. Donated capital assets are recorded at the estimated fair market value on the date received. The Authority capitalizes costs associated with properties under development, including interest costs during the construction period. The carrying amount of such properties does not exceed the estimated net realizable value. 18

20 Notes to Financial Statements Capital assets are stated at cost, less accumulated depreciation. Depreciation is computed under the straight-line method over their estimated useful lives. The estimated useful lives for each major class of depreciable capital assets are as follows: Buildings Furniture, equipment and machinery Vehicles years 3-10 years 3 years Proceeds from the disposal of capital assets are recognized in the period received. Proceeds from the sale of property acquired or significantly improved with HUD or other government funds may be required to be refunded to HUD or the other government. Compensated absences Compensated absences are absences for which employees will be paid, i.e., sick leave, vacation, and other approved leaves. In accordance with GASB Statement No. 16, Accounting for Compensated Absences, the Authority accrues the liability for those absences that the employee has earned the rights to the benefits. Accrued amounts are based on the current salary rates. Fulltime, permanent employees are granted vacation and sick leave benefits in varying amounts to specified maximums depending on tenure with the Authority. Vacation pay is recorded as an expense and related liability in the year earned by employees. As of, $312,607 was accrued for compensated absences. Operating revenues and expenses Operating revenues and expenses consist of revenue earned and expenses incurred as a result of the principal operations of the Authority. Operating revenue results from exchange transactions associated with providing housing and related services, and federal operating subsidies and housing assistance payments that are directly related to the Authority's mission. Non-operating revenue includes capital and noncapital federal grants, interest revenue, and other revenues not meeting the definition of operating revenues. Operating expenses consist of all expenses incurred to provide housing services. Capital grant revenues Capital grant revenues are grants awarded by HUD under various capital development and improvement programs including HOPE VI, Capital Funds, and Choice Neighborhood Planning Program grants. Grants under these programs are based on budgeted capital project costs. Interest incurred, if any, during the construction phase is included as part of the capitalized amount of construction in process or capitalized costs. Elimination of fees The Authority earns management fees, bookkeeping fees and asset management fees for services rendered in connection with the management of various Authority programs. The revenue and related expenses are eliminated for financial reporting purposes; however, details regarding these fees are available in the supplemental financial data schedule. For the year ended September 30, 2017, total revenue and expenses eliminated were $3,419,759. Impairment of long-lived assets In accordance with GASB Statement No. 42, Accounting and Financial Reporting for Impairment of Capital Assets and for Insurance Recoveries, prominent events or changes in circumstances 19

21 Notes to Financial Statements affecting capital assets are required to be evaluated to determine whether impairment of a capital asset has occurred. Impaired capital assets that will no longer be used should be reported at the lower of carrying value or fair value. Impairment of capital assets with physical damage generally should be measured using the restoration cost approach, which uses the estimated cost to restore the capital asset to identify the portion of the historical cost of the capital asset that should be written off. No such impairment loss was incurred during the year. Taxes Under Federal, State and City laws, the Authority is exempt from income, property and excise taxes. Housing authorities are, however, required to make payments in lieu of taxes (PILOT) in accordance with the provisions of their Cooperation Agreement with local taxing authorities. Under its Cooperation Agreement with the City, the Authority must pay the City the lesser of 10 percent of its net shelter rent or the approximate full real property taxes. Net shelter rent is defined as the excess of rental income over total utilities expense. During the year ended, PILOT were charged to operations in the amount of $169,408 and is included in general expenses on the Statement of Revenues, Expenses and Changes in Net Position. Insurance The primary technique used for risk financing is the purchase of insurance policies from commercial insurers that include a large deductible amount. The use of a large deductible clause reduces the cost of insurance, but should losses occur, the portion of the uninsured loss is not expected to be significant with respect to the financial position of the Authority. The Authority secures required insurance coverage through the competitive bid process. At, the Authority had required coverage in force. In accordance with G.S , the Authority s employees that have access to $100 or more at any given time of the Authority s funds are performance bonded through a commercial surety bond. The chief financial officer is individually bonded for $50,000. New accounting pronouncements Impact of recently issued accounting principals The GASB issued Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other than Pension Plans. The standard improves the accounting and financial reporting by improving the usefulness of information about postemployment benefits other than pensions and addressing accountability. This statement is effective for period beginning after June 15, 2016, and management implemented this statement during the year ended September 30, 2017, which did not have a material effect on the Authority. The GASB issued Statement No. 81, Irrevocable Split-Interest Agreements. The standard improves the accounting and financial reporting by providing recognition and measurement guidance for situations in which a government is a beneficiary of the agreement. This statement is effective for periods beginning after December 15, 2016, and management is currently evaluating the impact of the adoption of this statement on the Authority s financial statements. The GASB issued Statement No. 82, Pension Issues - an amendment of GASB No. 67, No. 68 and No. 73. The new standard addresses specific pension issues identified during the implementation of the new pension standards, specifically: (1) presentation of payroll-related measures in required supplementary information; (2) selection of assumptions and treatment of deviations from the guidance in an Actuarial Standard of Practice for financial reporting 20

22 Notes to Financial Statements purposes; and (3) classification of payments made by employers to satisfy employee (plan member) contribution requirements. This statement is effective for period beginning after June 15, 2016, and management implemented this statement during the year ended September 30, 2017, which did not have a material effect on the Authority. The following new accounting pronouncements have not yet been adopted by the Authority The GASB issued Statement No. 83, Certain Asset Retirement Obligations effective for financial statements with periods beginning after June 15, Management is currently evaluating the impact of adopting this standard. The GASB issued Statement No. 84, Fiduciary Activities effective for financial statements with periods beginning after December 15, Management is currently evaluating the impact of adopting this standard. The GASB issued Statement No. 85, Omnibus 2017 effective for financial statements with periods beginning after June 15, Management is currently evaluating the impact of adopting this standard. The GASB issued Statement No. 86, Certain Debt Extinguishment Issues effective for financial statements beginning after June 15, Management is currently evaluating the impact of adopting this standard. The GASB issued Statement No. 87, Leases Issues effective for financial statements beginning after December 15, Management is currently evaluating the impact of adopting this standard. The GASB issued Statement No. 88, Certain Disclosures Related to Debt, Including Direct Borrowings and Direct Placements effective for financial statements beginning after June 15, Management is currently evaluating the impact of adopting this standard. Note 2 - Deposits and investments Investments At times, the Authority has investments in certificates of deposit, savings accounts, and money market accounts. As of, the Authority had no such investments. These investments were included in investments on the Statement of Net Position. Interest rate risk Fair value fluctuates with interest rates, and increasing interest rates could cause fair value to decline below original cost. To limit the Authority's exposure to fair value losses arising from increasing interest rates, the Authority's investment policy limits the term of investment maturities to remain sufficiently liquid to enable the Authority to meet all operating requirements which might be reasonably anticipated. The Authority's management believes the liquidity in the portfolio is adequate to meet cash flow requirements and to preclude the Authority from having to sell investments below original cost for that purpose. The investments at met the Authority's investment policy as of that date. 21

23 Notes to Financial Statements Credit risk The investment policy of the Authority permits investments in the following types of investments: direct U.S. obligations, U.S. agency obligations, repurchase agreements, and money market mutual funds. Custodial credit risk This is the risk that in the event of a bank failure, the Authority's deposits and investments may not be returned to it. As of, $3,002,064 of the Authority's deposits and investments were exposed to this risk because the amounts were in excess of FDIC insurance limits, but the amounts were collateralized with securities held by the pledging financial institution in the Authority's name. The following schedule summarizes the custodial risk: Balance Reported on the Authority s Financial Balance Deposited with the Financial Institution FDIC Insurance Uninsured Amount (Fully Collateralized) Bank deposits $ 3,173,944 $ 3,325,489 $ 500,000 $ 2,825,489 Restricted investments escrows - 176, ,575 Total $ 3,173,944 $ 3,502,064 $ 500,000 $ 3,002,064 Cash and investments are reported on the balance sheet as follows: Cash and cash equivalents - unrestricted $ 2,407,653 Cash and cash equivalents - restricted 766,291 Total cash and cash equivalents $ 3,173,944 Note 3 - Restricted cash and investments Restricted cash as of consisted of the following: Restricted Cash: Tenant security deposits $ 191,257 HCVP 413,699 Section 8 Moderate Rehabilitation 128,101 Mainstream 32,492 ROSS 742 $ 766,291 22

24 Notes to Financial Statements Note 4 - Accounts receivable Accounts receivable as of consisted of the following: Dwelling rents $ 147,811 Allowance for doubtful accounts (102,592) Net tenant receivables 45,219 Other Other 140,391 Accrued interest receivable 2,099,855 Net other receivables 2,240,246 $ 2,285,465 Note 5 - Notes and mortgages receivable The Authority advances loans to third-party developers in conjunction with multi-lender mixed financing arrangements for new construction. These loans are evidenced by promissory notes. The source of the loans are from various programs including the HOPE VI and Business Activities. The loans are established for a HUD approved amount and funds are drawn by the developers as approved by the Authority. The terms of these promissory notes vary from 30 to 55 years. These loans do not have current payments due. The repayment terms state that payments are based on the cash flow of the borrower or, not meeting these requirements, the maturity date. In addition, the Authority has additional mortgage/notes receivables related to equity in homes that were sold to families under the Home Ownership Program. The home ownership notes will become due and payable to the Authority upon a sale or other conveyance of the property. Home Ownership Program loans are forgiven upon the recipient meeting certain specified criteria. 23

25 Notes to Financial Statements Notes outstanding as of consisted of the following: Originated Maturity Interest Rate Balance Kimberly Park I (Azalea I) 9/20/2001 9/20/ % $ 1,082,895 Kimberly Park I (Azalea II) 9/20/2001 9/20/ % 2,351,000 Kimberly Park II (Aster I) 8/14/2002 8/14/ % 2,538,000 Kimberly Park III (Arbor Oaks) 1/20/2004 1/1/ % 120,000 HHG I, LLC (Alder I) 7/28/2005 7/28/ % 1,500,000 HHG I, LLC (Alder II) 7/28/2005 7/28/ % 531,888 HHG II, LLC (Providence Place I) 7/28/2005 7/28/ % 889,799 HHG II, LLC (Providence Place II) 7/28/2005 7/28/ % 840,000 HHG III, LLC (Willows Peake) 7/28/2005 7/28/ % 2,155,664 Homeownership Loans* Various Various 0.00% 236,564 $ 12,245,810 * During the term of the loan, principal shall be deferred and due and payable at the earlier to occur of (i) repayment of the first mortgage or (ii) when the Borrower sells the property described in the Deed of Trust that secures the note. The promissory note shall terminate and shall be considered paid and satisfied in full at the end of the ten years of ownership and residency of the secured property by the homeowner. Interest income for the year ended and accrued interest as of September 30, 2017 consisted of the following: Interest Income Accrued Interest Kimberly Park I (Azalea I) $ 60,766 $ 50,922 Kimberly Park I (Azalea II) - - Kimberly Park II (Aster I) 144,412 1,462,739 Kimberly Park III (Arbor Oaks) 6,012 82,665 HHG I, LLC (Alder I) - - HHG I, LLC (Alder II) 26,062 19,547 HHG II, LLC (Providence Place I) 46, ,693 HHG II, LLC (Providence Place II) - - HHG III, LLC (Willows Peake) 114, ,289 Homeownership Loans - - $ 398,115 $ 2,099,855 24

26 Notes to Financial Statements Note 6 - Inter-Program Balances Balances due to and from the various programs were as follows: Receivable Payable Public Housing Central Office Cost Center $ 1,394,268 $ 571,914 Housing Choice Vouchers Program - 777,893 Business Activities Program 514, ,119 Forsyth Economic Ventures - 351,255 State and Local Program 57,797 - Total $ 1,966,181 $ 1,966,181 The Public Housing Central Office Cost Center generally acts as a paymaster for all programs resulting in inter-program balances at any given time. All internal activity is eliminated in the Statement of Net Position, and the Statement of Revenues, Expenses and Changes in Net Position. Note 7 - Capital assets A summary of changes in capital assets for the year ended is as follows: Transfers, Balance Reclassifications Balance September 30, and September 30, 2016 Additions Deletions 2017 Non-depreciable: Land $ 2,800,192 $ 282,376 $ 556,278 $ 3,638,846 Construction in progress 345, ,579 (108,063) 1,235,627 Depreciable: Buildings 86,369,121 2,153,177 1,047,966 89,570,264 Furniture, equipment and machinery 5,287, ,047 (963,976) 4,569,163 Leasehold improvements 481,914 9,455 (347,904) 143,465 95,283,430 3,689, ,301 99,157,365 Accumulated depreciation (66,103,399) (2,803,309) 888,880 (68,017,828) Total Capital Assets $ 29,180,031 $ 886,325 $ 1,073,181 $ 31,139,537 Construction-in-progress is the cost incurred on open development projects or on major capital improvement projects under the Capital Fund Program (CFP). These projects were at various stages of completion as of. Projects are not reclassed to other capital asset categories until the project is closed out, however depreciation expense begins when the project is ready for its intended use. 25

27 Notes to Financial Statements Note 8 - Accounts payable Accounts payable at consist of the following: Vendors and contractors payable $ 792,909 HUD 161,335 Accounts payable - other government 177,773 $ 1,132,017 Note 9 - Unearned revenues Unearned revenues at consist of the following: Public Housing - tenant prepaid rents $ 449,496 Business Activities - tenant prepaid rents 504 Component Units - tenant prepaid rents 785 $ 450,785 Note 10 - Current and long-term debt Debt summary Beginning of Year Additions Retirements End of Year $ 7,471,845 $ 2,579,133 $ (1,650,019) $ 8,400,959 26

28 Notes to Financial Statements Mortgages and notes payable Conventional Public Housing During 2014, the Authority executed a promissory note with Branch Banking and Trust Company in the amount of $275,000 to assist in the purchase and rehabilitation of Camden Station Apartments in order to provide affordable housing for very low, low, and moderate income households. The loan carries an interest rate of 0% per annum. The loan is secured by a deed of trust and is repayable on the earlier of November 5, 2030 or sale, conveyance or refinancing of the property. $ 275,000 During 2015, the Authority executed a promissory note with the City of Winston-Salem in the amount of $350,000 to assist in the purchase and rehabilitation of Camden Station Apartments in order to provide affordable housing for very low, low, and moderate income households. The loan carries an interest rate of 0% per annum. The loan is secured by a deed of trust and is repayable on the earlier of November 5, 2040 or sale, conveyance or refinancing of the property. 350,000 Business Activities Rehabilitation Loans: Plaza Apartments executed a promissory note with the City of Winston- Salem to renovate the property. The loan shall accrue interest at 1% per annum and shall be paid in equal installments over 25 years upon conversion. The loan does not have a maturity date. Currently, payments and interest accrual on the loan have been suspended until the satisfaction of the mortgage note payable. 2,737,472 During 2017, Drayton Pines executed a promissory note with Wells Fargo Bank in the amount of $1,348,000. The loan carries an interest rate of 4.62%. The loan is secured by a Deed of Trust and matures on October 10, Monthly payments of $8, are due beginning November 10, Only $100,000 of these funds have been received as of. 100,000 27